Will Lame-Duck Session Deliver Solution to Multiemployer Pension Crisis?

When the bipartisan Joint Select Committee on the Solvency of Multiemployer Pension Plans was created early this year, the members and co-chairs said they expected to vote on a package of solutions by today, November 30.

Senators and co-chairmen Orrin Hatch, R-Utah, and Sherrod Brown, D-Ohio, said today that they are going to miss this deadline, but that their committee is making strong progress and will continue working on a package of potential solutions during the lame-duck session of the 115th Congress.  

Anyone who has listened in on the committee’s various public meetings held throughout 2018 will have noticed the dire testimony given time and again by various stakeholders in the multiemployer pension space. One witness, a skilled and experienced actuary, suggested that he believes less than 1% of multiemployer plans are 100% funded when using reasonable actuarial assumptions. Another speaker pointed out that, when he started working on this issue some 10 years ago, the generally agreed upon figure was that multiemployer pension plans as a whole carried a funding gap of about $200 billion. Today, he said, it is more like a $680 billion shortfall, “and growing all the time.”

Experts called by both Democrat and Republican members have pointed out, in minute detail, the fact that millions of Americans across the country depend on multiemployer pension plans for their retirement security, and, if nothing changes, a growing number of workers face severe financial risks. They also spoke of the real and immediate risk posed by a big run of multiemployer pension plan insolvencies to the wider U.S. economy and taxpayers.

Facing this panoply of issues, Senators Hatch and Brown said their committee has made significant progress and that a bipartisan solution is attainable. They said more time is needed and the committee will continue its work.

“The problems facing our multiemployer pension system are multifaceted and over the years have proven to be incredibly difficult to address,” Hatch said. “Despite these challenges and a highly charged political environment, we have made meaningful progress toward a bipartisan proposal to address the shortcomings in the system to improve retirement security for workers and retirees while also providing certainty for small businesses that participate in multiemployer plans.”

“While it will not be possible to finalize a bipartisan agreement before Nov. 30, we believe a bipartisan solution is attainable, and we will continue working to reach that solution,” Brown said. “We understand that the longer that these problems persist, the more burdensome and expensive for taxpayers they become to address, and we are committed to working toward a final agreement as quickly as possible.”

One potential solution already on the table

As PLANADVISER has reported, absent deep benefit cuts, many union-sponsored multiemployer pension plans are likely to become insolvent in the next decade. Even if they receive financial assistance from the government, many may not be able to meet their full obligations. This is according to a recent white paper published by the Pension Analytics Group, which bills itself as “a group of actuaries and economists who are concerned that the clock might run out before a viable solution for the multiemployer system’s funding problems can be designed and implemented.”

The group conducted its latest analysis in response to one commonly floated solution to the multiemployer pension funding issue—the launch of a government-backed bailout loan program, of the type included in some recent proposals from lawmakers and retirement industry professionals. Supporters suggest a long-term, low-interest-rate loan program could save the most troubled multiemployer pension plans without imposing undue hardship on participants, contributing employers, the Pension Benefit Guaranty Corporation (PBGC), the federal government, taxpayers or healthy plans.

As the paper explains, supporters of this approach contend that it buys time for struggling pension funds to get back on their feet. Eventually, it is hoped, a plan receiving a loan will regain its strength, pay off its loan and avoid insolvency.

For its analysis of whether this approach is likely to be effective, the Pension Analytics Group considers a relatively straightforward theoretical loan program, under which each troubled pension plan will be eligible to receive a one-time lump-sum loan equal to the plan’s funding deficit. To determine the deficit, plan liabilities will be measured at a 7% discount rate, and the loan interest rate will be fixed at 2%, which is below current Treasury yields. Among some other stipulations, the analysis assumes the term of each loan will be 20 years, at which time the entire amount of the loan must be repaid with interest.

According to the analysis, across some 500 stochastic trials, the average total number of participants in plans projected to become insolvent is 3.1 million in the baseline scenario, and 2 million if the loan program is implemented.